TMI Blog2018 (11) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80IA of the IT Act to the Assessee. The Revenue has raised the following grounds of appeal: i. The order of the Ld. CIT(A) is erroneous on facts as well as in law. ii. The Ld. CIT(A) erred on facts and in law in allowing the benefit of deduction of ₹ 2,86,17,035/- claimed by the assessee u/s 80IA of the IT Act. iii. The Ld. CIT(A) ought to have appreciated that the assessee has executed only works contract as per the specifications of contractee departments and not a developer of infrastructure facility as envisaged u/s 80IA of the IT Act. iv. The Ld. CIT(A) ought to have considered that in view of the explanation to Sec. 80IA(13) as substituted by the Finance (No.2) Act, 2009 with retrospective effect from 01.04.2000, any undertaking or enterprise who executes works contract as a contractor does not qualify for deduction u/s 80IA of the IT Act. v. The Ld. CIT(A) ought to have further appreciated that the decision of the ITAT, Pune in the case of M/s B T Patel Sons referred in the first appellate order is not applicable to the case of the assessee as the assessee has executed only works contract during the year and therefore, the profits de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the assessee is eligible for deduction u/s 80IA of the IT Act. For the sake of ready reference the relevant paras of the order of the Tribunal for the A.Y 2012-13, to which both of us are signatories, is reproduced hereunder: 4. Having regard to the rival contentions and the material on record, we find that for A.Ys 2008-09 onwards, the AO has been disallowing the assessee claim of deduction u/s 80IA of the Act on the ground that the assessee is not developing the infrastructure with its own funds but is developing with the funds provided by the Govt. We find that this issue was considered at length in Tribunal s order for the A.Y 2010-11. The relevant paragraphs are reproduced hereunder for ready reference: 3. As far as the first effective grievance of the assessee in this appeal concerning disallowance of deduction under S.80IA is concerned, contained in ground No.2 above, we find that similar issue was considered by this Tribunal in assessee's own case for the assessment year 2005- 06 to 2007-08 in ITA Nos.269/Hyd/2009, ITA No.1165/Hyd/2009 and ITA No.1171/Hyd/2010 respectively vide order dated 16.3.2012. The Tribunal by the said order has decided the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word it is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. 33. The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80IA (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. We find that the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2010, such activity is eligible for deduction under section 80IA (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. 34. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word contractor is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word contractor is used to denote the person who enters into such contract. Even a person who ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categorically states that the deduction under section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before us that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know- how, expertise and financial resources. Further, the order of Tribunal in the case of B.T.Patil cited supra is prior to amendment to sec 80IA(4), after the amendment the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the or between three activities was not there, after the amendment or has been inserted w.e.f. 1-4-2002 by Finance Act 2001. Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act as the contracts involves, development, operating, maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, we make it clear that where the assessee has carried out the development of infrastructure work in Consortium and not as a sub- contractor, then also the assessee is entitled for deduction u/s 80IA of the Act. The same is applicable in case of work allotted by Government Corporation/Government Bodies. 38. Further in the case of R.R. Constructions, the Chennai Bench of the Tribunal in its order dated 3.10.2011 in I.T.A. No. 2061/Mds/2010 for assessment year 2007-08 held as follows: 3. We have heard rival submissions and have carefully perused the entire record. The first issue of the appeal is regarding claim of deduction under section 80IA(4) of the Act. The case of the revenue is that the assessee is a 'works contractor' and not a 'developer' as stipulated under section 80IA(4) of the Act. The section 80IA(4) applies to any enterprise, which carries on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities, which fulfil all the above conditions. There cannot be any question of providing a condition for such an enterprise to start operating and maintaining the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment of the infrastructure facilities and satisfy all the conditions of section 80IA(4)(i)(a). It is undeniable fact that the assessee has taken development of infrastructure facility agreement from the State Government/local authority. A contractor who develops the infrastructure facility becomes a developer to claim exemption under section 80IA(4). The Hon'ble Bombay Bench of ITAT while deciding the case of Patel Engineering Ltd. vs. DCIT in ITA No.1221/Mum/2004 has gone to the extent of holding that the assessee, a civil contractor, having executed a part of contracts of irrigation and water supply on 'build and transfer' basis and handed over them to contractee Governments, was eligible for deduction under section 80IA(4). 5. We have also taken a similar view in ITA No. 554/Meds/2010 in the case of East Coast Constructions Industries Ltd v. DCIT vide order dated 13.09.2011 and relevant paras from 9 to 14 are reproduced hereunder: 9. After considering the rival submissions, we can safely say that the benefit of section 80IA is available only to a 'developer' who carries on business of 'developing of infrastructure facility'. A per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson who makes infrastructure and himself executes development work and carries out civil work will be eligible for tax benefit u/s 80IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contract, will not be eligible for tax benefit u/s 80IA. It was clarified by the Circular No. 3 of 2008 dated 12.3.2008 that the provisions of section 80IA shall not apply to a person who executes only work contracts and only those who make the development work will be eligible for tax benefit u/s 80IA of the Act. Be that as it may, when we apply this provision in its letters and spirit, we find that this assessee is verily eligible for deduction u/s 80IA, as the assessee-company fulfils all the relevant conditions. The facts of this case go to prove that the assessee is a 'developer' of infrastructure facilities. The reasons for our above conclusion are given in the following paras. Firstly, the assessee-company not only designs but also creates new products. The assessee had undertaken four projects during the relevant year and executed, constructed, delivered and maintained by it. As per the definition of Advanced Law Lexicon [pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract. Accordingly, it is proposed to clarify that the provisions of section 80-IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80- lA. In contrast to this, a person who enters into a contract with another person (i.e., undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80- IA. This amendment will take retrospective effect from April I, 2000 and will accordingly apply in relation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. It was urged that since the assessee was not operating and maintaining the facility, he did not fulfil the condition. The submission is fallacious both in fact and in law. That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1st April, 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1st April, 1995. After Section 80IA was amended by the Finance Act, 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility' which fulfils certain conditions. Those conditions are (I) ownership of the enterprises by a company registered in India or by a consortiums; (II) an agreement with the central or State Government, local authority or statutory body; and (III) the Start of operation and maintenance of the infrastructure facility should commence after 1st April, 1995. The requirement that operation and maintenance of the infrastructure facility should commence aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracted above, is directly applicable to the facts of the case and eventually is entitled for the deduction under section 80IA(4) of the Act. Accordingly, the modified ground, which is common in all the four appeals is allowed in favour of the assessee. 12. Let us remind ourselves that the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd vs CIT, 196 ITR 188, has ordained that taxing statute granting incentives for promoting growth and development should be liberally construed. 13. Now, the question arises as to whether the term 'contractor' is not essentially contradictory to the term 'developer'. In fact, in every development the term 'developer' will definitely be a 'works contractor' but every works contractor may not be a 'developer'. A 'developer' is a specific kind of works contractor to be eligible for deduction u/s 80IA(4) who fulfils all the conditions namely, if the assessee develops the infrastructure facility if it operates the infrastructure facility and if it maintains the infrastructure facility or to put it in simpler terms, the harmonious reading of the provisions in its entirety would lead to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awings to the work of construction has been done by this assessee and has borne the cost itself. The company has constructed, delivered and maintained and security is also maintained thereafter. So, this is a case of transfer of property in chattel and not a contract of service. A 'developer' as per the Advanced Law Lexicon means a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorized for such purpose by any such developer . In the case of ACIT vs Bharat Udyog Ltd, 'F' Bench of ITAT Mumbai, has concluded that any assessee who is engaged in developing the infrastructure facility and also operating and maintaining the same, is entitled to the benefit of deduction u/s 80IA(4). A copy of this decision is enclosed at page 139 of the paper book. In the case of Patel Engineering Ltd vs Dy. CIT, 84 TTJ (Mumbai) 646 [copy enclosed at page No. 145 of the paper book], it has been held that a person, who enters into a contract with another person will be treated as a 'contractor' undoubtedly; and that assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eloper for development of infrastructure facility/Project. The same has been the position in the given case as well. So, deduction u/s 80IA(4) is also available to this assessee which has undertaken work of a mere 'developer'. Rather, the statutory provision as contained in section 80IA which provides for deduction of infrastructure facility no way provides that entire infrastructure facility project has to be developed by one enterprise. Thus, as per section 80IA the assessee should develop the infrastructure facility as per the agreement with the Central/State Government/Local Authority. Entering into a lawful agreement and thereby becoming should, in no way be a bar to the one being a 'developer'. In this regard, as we have already stated, the decision of ACIT vs Bharat Udyog Ltd, 118 ITD 336 and Patel Engineering Ltd vs Dy. CIT, 84 TTJ 646, are relevant. As per Circular No. 4/2010[F.No. 178/14/2010-ITA-I] dated 18.5.2010, widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80IA(4)(i) . The assessee is not required to develop the entire road in order to qualify for deduction u/s 80IA as has been held by the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussion, we are inclined to partly allow the ground relating to claiming of deduction u/s. 80IA.of the Act in all these appeals. 9. As for the decision of the Tribunal relied upon by the Learned Departmental Representative in the case of B.T. Patil Sons Belgaum Constructions Pvt. Ltd, Belgaum Vis. ACIT Circle 2, Kolhapur (126 TTJ 577(TM), l ITR 730)(Trib)(Mum.) has been overruled by the Division Bench in ITA No. 1408 1409/PN/2003 for assessment years 2000-01 and 2001-02, whereby deduction under S. 801A(2) of the Act have been allowed by the. Tribunal, complying with the following directions of Hon'ble Bombay High Court in ITXA No. 1307 of 20ll 2000-01 and for 1640 of 2011 for assessment year 2001-02. 1. Since the Tribunal has recalled the impugned order dated 23.03.2011, the appellant is withdrawing its appeal. 2. Further, while considering the matter afresh, the Tribunal will take into consideration all decisions including the decision of this court in the matter of CIT V Is. ABG Heavy Industries Ltd. reported in 322 ITR page 323. All contentions are kept open. 3. The appeal is dismissed in above terms. Admittedly, in the case ofBT Patil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gave a fresh date of hearing to the assessee. 4. While the said appeals are pending before the Hon'ble Tribunal to give effect to the opinion of the Third Member as per the provisions of section 255(4) of the Act, the Hon'ble Bombay High Court in the case of ABG Heavy Industries Ltd., passed an order granting deduction to the said assessee u/s. 80IA(4) of the Act. The said jurisdictional order is contrary to the opinion given by the Third Member of the Tribunal. Meanwhile the appeal filed by the assessee against the order of the Tribunal dismissing the appeals of the assessee in limine, before the Hon'ble Bombay High Court came up for hearing on 24/0112013. In the course of hearing before the Hon'ble Bombay High Court the Counsel of the assessee brought to the notice of the Hon'ble High Court the fact that the Tribunal in the Miscellaneous Application filed by the assessee had recalled its order and the said matter was now fixed for hearing on 15/02/2013. As such the assessee requested to withdraw the said appeal. The assessee also drew attention of the Hon'ble High Court to the decision of ABG Heavy Industries and requested the Hon'ble Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under such section for the A.Ys. 2000-01 2001-02, assessee should carry on all three activities i.e. developing, maintaining operating cumulatively. By developing the infrastructure facility and transferring it to another person for maintaining and operating, the benefit can be availed only from the A.Y. 2002-03. In view of the amendment to section by Finance Act, 2001 where in 'or' is inserted between developing and maintaining operating i.e. developing or Maintaining operating. In case of ABO Heavy Industries Ltd. others (supra), the Hon'ble Bombay High Court has observed as under: With effect from Ist April, 2000, by the Finance Act of 1999, certain changes were brought about. Section 80-IA 80-IR were substituted for section 80-lA. Sub-section (4) of section 80-IA of the act provided that the section shall apply to any enterprise carrying on the business of (i) developing, (ii) Maintaining operating, or (iii) developing, maintaining and operating an infrastructure facility which fulfils certain conditions. By the Finance Act of 2001, the word 'or' came to be introduced after the word developing, to clarify in effect that the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s involving the development of an infrastructure facility. The assessee has also in its employment technically and administratively qualified team of persons and therefore it is not correct to say that assessee is merely a contractor not a developer. The assessee is eligible for benefit u/s 80-1 A even if Part of the Infrastructural Project work is executed . 9. It was found by the erstwhile Judicial Member that assessee fulfilled the conditions of being a developer as subsequently interpreted by the Hon'ble Bombay High Court. With regard to clariflcatory amendment to sub-section (13) of section 80IA by Finance Act 2007 2009 whereby the assessee is not held eligible for deduction u/s 80IA(4A). In this regard, we find that the amendment of 2007 debars the sub-contractor from availing benefits u/s. 80IA(4A) . The amendment of 2009 is not applicable in the case where the assessee executes the work by shouldering Investment technical risk by employing team of technically administratively qualified persons and it is liable for liquidated damages if failed to fulfill the obligation laid down in the agreement and also securing by Bank guarantee. As the assessee has fulfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities. In fact the Government of Maharashtra has entered in Tripartite Agreement with the assessee company and PEC. Works completion certificate has been issued in favour of the assessee company for the execution of the Work. Power of Attorney is given by Prime Contractor to Sub Contractor and accepted and exceeded by Project Authorities. 12. The fact that the assessee has a tripartite agreement with the relevant amhorities makes the assessee a party to the main contract work itself and which clearly shows that the assessee on their own right are comractors and not just sub contractors as normally understood. The assessee is the contractor vis-a-vis the portion allotted to them and not only subcontractors, i.e. a direct party to the main agreement. The assessee has entered into a main agreement, in their own right, can claim t:le benefit of section 80IA. As the assessee being directly under contract to the concern for the work done and are also directly dealing with the Government on whose behalf the assessee are doing the work. they can be considered as main contractors alongwith PEC and are not simply sub contractors vis-a-vis the work undertaken by them. As such. the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l act and deeds of its promoter 'U and owned all the assets and liabilities of its promoter through an agreement of assignment executed between the assessee and 'A' after obtaining approval from the State Government, the assessee should be deemed to have undertaken the construction work since 1-4-1995. Since the Government had provided this deduction in order to encourage economic growth of the country, the plenitude of exemption should not be whittled down, by laying stress on ambiguity here and there. Ifit was proved that, the assessee-company had obtained the status of a tenderer by virtue of a valid assignment, it should not be denied the benefit of deduction provided by the Central Government through introduction of sub-section (4A) of section 80 IA. The action of A and the assessee could only be termed as a valid tax planning which was permissible under the law. Therefore, the assessee had fulfilled the requirements provided in section 80IA (4A)(ii) for claiming deduction, and, therefore, the Assessing Officer should have allowed the deduction claimed by the assessee company. 13. It was further clarified on behalf of the assessee that with regards to Bhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (supra). Thus, while giving effect to the opinion of Third Member u/s.255(4) of the Act, we take view in conformity with order of jurisdictional High Court in case of ABO Heavy Industries Ltd. (supra) available at this time though contrary to the opinion expressed by the Third Member. So in view of above discussion, following the ratio of jurisdictional High Court in case of ABG Heavy Industries Ltd. (supra), the Assessing Officer is directed to allow deduction u/s.80IA(4) of the Act to the assessee with regard to the projects in question for both the years. The matter is disposed off accordingly. 10. In view of the above position, the Third Member decision of the Tribunal in the case of B.T. Patil Sons Belgaum Constructions Pvt. Ltd. (supra), relied upon by the Learned Departmental Representative, is no longer a good law, and as such, we are not inclined to follow the same. 11. In the light of the above discussion, modifying the orders of the Commissioners (Appeal) for both the years under appeal, we direct the Assessing Officer to allow the claims of the assessee with regard to deduction under S.80IA of the Act in respect of execution of civil contracts on own ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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